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The Importance of Professional Judgment in the Financial Industry

Executive summary

The entire study mainly emphasised on the importance of professional judgment within the financial accounting. Moreover, the study is divided into five parts where the each part of this paper critically evaluated the importance and effectiveness of the professional judgment. Besides, the paper emphasised on the various research question along with study objectives. On the other hand, it also can be found that the entire paper focused on the methodologies for collecting data regarding effectiveness of the professional judgment within financial accounting. Moreover, it also sheds light upon the critical data analysis by collecting reliable and valid data from the professional accountants. Besides, the study also helps to find out the proper conclusion regarding the importance of the professional judgment.

 

Introduction 

Professional judgment mainly stands for the application of gathered knowledge along with practical experiences that are achieved through the relevant accounting training. Moreover, it also can be found that professional accounting is associated with significant ethical standards in the context of making the financial report perfect and reliable. The study mainly emphasized on the background of professional accounting along with its significance to make the process of financial accounting reliable. However, this study aims to analyze the critical factors of professional judgment through the evaluation of the financial accounting standard.

Background of the study 

As per the Accounting Standard Board of Australia, all the firms are advised to use proper accounting standards in their financial accounting. On the other hand, it also has been found that the Australian security and investment commission Act 2001 mainly advised to use proper accounting standards at the time of making any lease contract, liability provisions in the context of making a proper financial report (Australian Government, 2019). Therefore, it can understand that to avoid any kind of transactional issue or fraud cases the professional judgment is extremely needed for the auditors. Besides, it also has been found that most of the accounting firms prepare the false financial report in the context of achieving advantages from the government related to the achievement of business index. Based on the current condition it has been understand that the professional judgment is too much essential for maintaining the accounting standard in making a financial report as per the regulations Australian Accounting Standard board.

The rationale of the paper

The core challenges of this paper mainly based upon the monetary accounting of the various Australian firms which shows lots of transactional issues within the final report. It has been found that most of the firms humiliated the accounting standard advised by the Board of Australian accounting standards in the context financial position achievement under the annual business index (Bryce, Ali & Mather, 2015). On the other hand, it also can be analyzed that the core issue regarding professional judgment mainly stands for principle-based accounting with the evaluation of true and fair view.

Based on the above issue it has been found that it started to become a big barrier for the auditors to audit the financial statements of the organization in the context of analyzing the reliability. On the other hand, it also can be found that the accounting standard issue impacts negatively on the economic development of a country based on poor performance (Dyckman & Zeff, 2015).

Such kind of barriers which evaluated in the above discussion creates a lot of barriers in the present market to improve the economic growth of a particular country. On the other hand, it also has been found that improper application of the Accounting standards of AASB and IFRC creates lots of fraud cases related to leasing contracts along with construction contracts (Worthington, 2016).

Therefore, the study sheds light on the importance of applying professional judgment for making a potential decision regarding financial accounting reliability. Moreover, the entire study focused on the primary drivers of professional judgment implications. Besides, the study also emphasized the issues or challenges regarding financial accounting for understanding the need for professional judgment. 

Aim of the paper

This research aims to examined the importance along with effectiveness related to professional judgment to examine the financial report of the firms along with making various kinds of formal contracts. 

Objectives of the paper

• To understand the idea of professional accounting

• To analyze the significance of professional judgment for maintaining the accounting standard

• To find out the primary drivers of the professional judgment

• To identify the issues regarding professional judgment in the context of identification of the transaction issues

• To analyze the relation between professional judgment and financial accounting along with formal contract making

Questions of the study

The question of this study mainly based upon the objectives of the paper which indicates the significant aspects of professional judgment such as

• What is the concept of professional judgment?

• What is the significance of professional judgment to maintain financial accounting standards?

• What are the core drivers of professional judgment?

• What are the significant issues related to professional judgments based on transactional faults?

• What is the relation between financial accounting or formal contract making and professional judgment?

Significations of study

The study helps to understand the core importance of professional judgment which helps the auditors to make any final decision regarding the financial report. On the other hand, it also can be found out that the study allow to understand the current situation and activity of the Australian accounting firms. Moreover, the entire paper helps to find out the duties of a professional accountant and a professional auditor to make difference between them. Besides, this discussion also helps in the identification of the role and duty of a professional judge who can make a perfect decision regarding the faults within a financial report. On the contrary, this study also assistance to be assured regarding the contribution of the professional judgment application in the context of fair or true financial position development of the organizations based on their performance entity. Finally, it can be signify that the entire study generally helps in evaluating the importance of independent judgments along with professional experts’ complexity regarding financial accounting.

Summary 

From the upper discussion, it can be summarised that the whole discussion helps to make a concept regarding professional judgment entities. It also can be summarised that the whole discussion helps to find out the aims of the study. Moreover, the paper also helps to summarise the current issues regarding professional judgment which is overlapped with the financial accounting standard maintenance. It summarised all the significant matters regarding the formation of a formal contract based upon lease and contractual aspects. On the other hand, it also can be found that the elaborate discussion helps to summarised that professional judges are too essential to find out the transaction faults within a financial report in context achieving a reliable financial position of the Australian firms. 

3. Methodology

Introduction

The methodology of the paper is mainly defined as the systematic approach that is highly beneficial to conduct the study in a effective manner. The objectives are also meet within this part while finding out the accurate method. In addition to this, the methodology helps for illustrating the question and show the way for conducting the study in the correct direction. In this part, it highlights the selection of philosophy, design, approach which is needed to conduct the study in a proper way. Moreover, the main focus is to show the importance of professional judgement within the financial industry hence this requires some methodology to find out the result.

Philosophy of the study

The philosophy is mainly associated with the belief regarding the ways in which the information is needed to gather. In addition to this, the philosophy mainly divided into three types which include interpretivism, positivism and realism. In this study, there was a selection of positivism because it depends on the observation related to the statistical data. Hence, for finding the importance of the professional judgement within the financial industry it requires some of the statistical data.  Moreover, with the use of this positivism the researcher can be independent; there was no provision in terms of human interest. Moreover, the thought process to evaluate a exeptional topic can be different from the sorting of exploration philosophy. As per the views of Kumar, (2019), the positivism can be helpful for forming towards providing logic and analysing the hidden facts. In this study, it is time limited so; the use of this philosophy can be highly beneficial for covering all the aspects within the given time frame. 

The use of positivism can create a limitation for the researcher's part in terms of manipulating any kind of data which can be lead towards fewer data errors. In the views of Alvesson & Sköldberg (2017), in here there is the use of quantitative approach so; the use of positivism is highly relevant. Moreover, positivism followed a proper structure which can be helpful for finding the appropriate result regarding the significance of professional judgement within the financial industry.

Approaches of exploration

An approach is mainly related to the study of a topic which is needed for conducting the study for revelation. In addition to this, a particular research topic is taken for the study to complete in two ways which are inductive and deductive. Moreover, the research approach can be on 2 types which include deductive exploration approach along with and inductive exploration approach. The inductive approach is mainly beneficial for helping a study when there is enough data present. Moreover, in the initial phase, the inductive approach is espial which assists for achieving episodic information and tends to build a path in a proper way (Quinlan et al., 2019). The deductive obtainment is generally perturbation with the improving of a hypothesis which can be based upon the subsisting theory. The deductive approach mainly denoted as the reasoning for a particular towards general.

In the study, there was the selection of a deductive approach because it helps for explaining the causal relationship which is between the variables and the concept. In this case, it was helpful for showing the relationship between the professional judgements within the financial industry. Moreover, it was also beneficial for measuring the concepts in a quantitative way along with that helps to show the generalise finding within a certain extent. On the other hand, the other one was not selected because there were certain limits in the inductive approach. In the view of Silverman (2016), there also occur some problems while using the inductive approach is that for fining the importance there is a chance of not providing the actual result.

Research design

The research design is highly beneficial for providing the actual procedures and method for analysing the variables. On the other hand, the research design is mainly denoted as the strategy and structure for finding the actual answer form the research question in terms of controlling the variance. In the views of Taylor, Bogdan & DeVault (2015), the use of research design within a study is highly beneficial as it helps for reducing the amount of inaccuracy. Hence, research designs are of three types which include descriptive research design, exploratory research design and explanatory research design. In case descriptive research designs the researcher is highly interested in explaining the case or satiation. On the other hand, in the case of explanatory research design, the researcher idea is the prime focus because it is highly dependent within the personal inclination regarding a specific topic. The exploratory research design is mainly conducted regarding any kind of problems which is studied in a proper way for establishing the priorities.

In this study, there was a selection of descriptive research design because it was helpful for finding the results in an unchanged environment. Moreover, this was helpful for showing the analysis for those variables which cannot be tested. In the case of finding the in-depth analysis of professional importance in the financial industry, this was design was the best as it provides an in-depth analysis.  In the views of Flick (2018), the descriptive design is also helpful for providing a rich amount of data towards a large amount. Hence, this was chosen because the other design was not able to provide the correct data within the stipulated time frame and also within large data. The other design was not able to provide in-depth analysis form with the two variables. 

Data collection procedure

Data are mainly denoted as the impotent part for collecting the facts and information to study the topic with proper knowledge. In the opinion of McCusker & Gunaydin (2015), the data collections are highly beneficial for finding the correct information to start the job in a proper way.

Data source

A data source is helpful for penetrating the research for getting the information. Data collection is done on two types which include the primary and secondary data. In the views of Ledford & Gast (2018), primary data is helpful for showing the raw data as per the requirements. In the case of secondary data, it is used as per the widening of the research concept which involves more description of the data. In this case, there was the selection of primary data collection which includes the interaction with the accountants of the financial industry to get a better outcome. Moreover, there was the use of literature for getting output information through secondary sources. In the case of secondary sources, there was the use of offline and online source which includes journals, book and others. Apart from this, there was the use of qualitative data where accountants were used as the qualitative data sources for gathering information form interview.

Population and sample

The population is mainly denoted as the direct or indirect way for involving the content to get the results. Thus, in this study, there was the use of 3 accountants as a sample size from the financial industry. They were interviews as per their flexible timing and scheduled. The sample size is mainly developed as per the qualitative perspective for getting reliable data. Moreover, there was the use of thematic analysis from the interview in order to analyse the data to get the idea of professional judgement importance in the financial industry. 

Ethical consideration

In order to conduct the study, the research is needed to follow some code of conduct which helps for finding the correct and wrong evidence. The research for analysing the importance of professional judgement tries to follow some of the ethical consideration which helps to give s standard to the study.

Data application: The data gained through the study was helpful or providing an understanding of the financial sector regarding professional judgement. Hence, any commercial application regarding data is strictly avoided to make sure there is academic ethics was followed.

Involvement of respondents: In this study, it was tied not to provide any kind of external influence on the respondents while taking part in the interview session. The respondents were encouraged to speak regarding their feeling without any kind of pressure. In addition to this, it was to make sure there was no kind of mental harassment to the respondents.

Research limitation

The study is highly beneficial for providing the appropriate results of the concerned topic which shows the amount of restriction that is non-avoidable and avoidable also. In the perspective of Brannen, (2017), the limitation in research is quite natural which shows there is a scope along with some abilities. In this topic, there is some limitation which is needed to be followed properly. Those are followed: 

Reliability: The respondents that are involved within the process were not forced or neither influenced to answer. On the contrary, the accountant responses can be biased towards their organisation which can be a barrier for finding the result. Hence, the issue with reliability was seen in the study.

Time limit: There was the use of cross-sectional study hence; the research has some time limitation which leads the study to provide a short time frame. Hence, it was seen that because of this cross-sectional there was a lack regarding the deep analysis.

Budget limit: The study seems to have a limited budget which was faced in this study while finding the result. Hence, the lack of finance leads towards a barrier for buying some of the journals which could provide a better quality of work.

Time horizon

It can be seen that research can be cross-sectional or longitudinal in nature as well as depending on the time allocation. Hence, in this study, there was the selection of cross-sectional study which has a limited time so, the application of the Gantt chart was considered as an easy completion of research work. In the views of Saunders, Lewis & Thornhill (2007), the Gantt chart is highly beneficial for separating the task as per the study structure and provides a better completing of the topic.

Summary

From the above study, it can be found that in order to conduct a proper study there is a requirement of appropriate methodology to do in a synchronised way. In addition to this, the selection of methodology is needed to be accurate in order to found the appropriate results from the variables. Here, in the study it can be seen there was the selection of descriptive design, deductive approach and positivism philosophy for finding the appropriate analysis. The above selection was appropriate for analysing the importance of professional judgement within the financial industry. In addition to this, the use of this part, the research was able to align the nature of study for framing the methodology in a proper way. Moreover, it can be found there was a selection of 3 accountants for fining the results from the financial industry through the use of qualitative study. 

4. Data analysis

Introduction

Data analysis mainly stands for the determination of collected data along with its critical evaluation to find out the proper conclusion regarding the importance of professional judgment. On the other hand, it also can be said that data analysis helps to examine the practical experience of the peoples. However, the entire study mainly emphasis on the critical analysis of collected data from the respondents regarding professional accounting. The core aim of this study is to analyze the importance and effectiveness of professional judgment by examining the practical experience of the respondents. Besides, the study helps to find out the core findings regarding professional judgment. On the other hand, the entire study helps to develop the reliability and validity of the conclusion through data analysis. 

Qualitative analysis

What do you think about the utilization of proper accounting standards in financial accounting?

Based on the question mentioned above respondent number one said that" Most of the firms did not use the AASB accounting standard properly for their financial profit”. Therefore it can be analyzed that most of the Australian firms did not follow the accounting standard suggested by the governing board under the accounting department.  It means most of the financial statements of the companies were not true or faithful in the context of analyzing their financial position. On the other hand, it also can be analyzed that the improper utilization of the accounting standards impacts negatively on the GDP growth of the country. As per the reply of second respondents, it has been analyzed that some ASX listed companies follow the accounting standard of the AASB to maintain their brand image. 

On the contrary, the small firms were not following the accounting standards properly to avoid the income tax payment to the taxation authority. Therefore it can be analyzed that professional judgment is too necessary to determine the proper financial position of the organizations by auditing their reports properly. Besides, the third respondent told that the reason behind the improper use of accounting standards within the financial report making was for hiding the illegal activity of the firms. Therefore, it can be analyzed that professional judgment helps to find out the critical factors regarding illegal business activity by examining the transaction record of the organization. Moreover, it also can be analyzed that to rectify the illegal activity of the firms the professional judgment is too significant for the future growth of a country.

What is your opinion about the reliability of the financial statement of the organizations?

The first respondent replied against the question that the reliability of any financial statement only can audit or understand by a professional auditor. On the other hand, the second respondent told that "Most of the financial statements are found illegal based on the wrong use of accounting standards”. Therefore, it can be analyzed that only a professional account can identify the illegal factors regarding any financial statement of any organization. Moreover, the statements also help to understand that the making of perfect decisions regarding financial accounting only helps to develop the standard of economic condition.  

However, the third respond replied that if the previous report of an organization can be analyzed with the current one some deceptive factors can be recognized. Therefore, it can understand that by analyzing the utilized accounting standards by an organization with the current utilized accounting standards helps to find out the illegal activities of an organization. Likewise, it can be said that here the respondents only focused on the professional analysis of the financial report with the help of a professional accountant. Therefore, it can understand that the respondents indirectly emphasis on reliable decision making regarding the truthfulness of the financial statements which is only possible by making a professional judgment. 

Do you think that professional judgment is useful for proper financial accounting?

As per the above query, respondent number one replied that only the professional judgment can identify the core faults within a financial report. On the contrary, the second respondent replied that "No, I don’t think so! The professional auditors also can audit a financial report properly”. Therefore, it can be analyzed that professional judgment effectiveness is still not impacted positively on people's minds. On the other hand, it also can be analyzed that the professional judgment needs to develop their strategies for making a financial report reliable which helps to impact positively on the people's mind. Likewise, the third respondent also provides a negative reply regarding the usefulness of the professional judgment reading financial accounting development. The respondent replied that” No, a professional judge cannot take a proper decision regarding the reliability of a financial statement. It is less useful for financial accounting”. Therefore, it can be analyzed that the implementation or usefulness of professional judgment is still not propagated properly to the accounts department of the organizations. Moreover, it also can understand that in the current situation professional judgment is less noticeable for the financial accounting whereas the demand for professional accountant and auditors are more noticeable. 

What is your concern about the importance of professional judgment at the time of auditing?

The importance of professional judgment at the time of financial report auditing is evaluated by the analysis of responses of the respondents. Based on the question mentioned above the first respondent said that "It helps to identify the fraud cases regarding various contract and transaction". Therefore it can be analyzed that professional judges are too much experience in the auditing of the financial reports. On the other hand, it also can be analyzed that the professional judges are easily finding out any kind of illegal activities regarding financial transactions done by an organization. It will help the professional accountants to make a reliable financial report by following the proper utilization of the AASB accounting standards. Apart from this the statement also helps to understand the effectiveness of the professional judgment based on the conducting of financial accounting properly. 

However, in respect of the query, the second respondent replied that "It only can guide an auditor for auditing a financial statement properly". On the other hand, the third respondent also replied that "I don't think professional judgment plays any significant role at the time of auditing". Therefore, it can be said that professional judgment still not impact positively based on its usefulness regarding financial auditing. On the other hand, it also has found that the respondent thought that professional judgment only can guide a professional auditor but not useful for the perfect auditing. On the contrary, it also can be analyses that if the professional judgment can guide any auditor properly for perfect auditing it can be recognized as the most useful factor for financial statement auditing. Moreover, it also can be said that the proper guidance of the professional judges only can help to make the right decision regarding the financial position of an organization in respect of the business index.

What is the most fruitful factor of a professional judge in decision making?

Based on the query mentioned above the first respondent replied that it mainly helps in the analysis of various kinds of accounting standards profitability in respect of their different kinds of significance. On the other hand, the second respondent replied that “It focuses on the applicable accounting policy”. Therefore, it can be analyzed that the accountant mainly emphasis on the fruitfulness of the professional judgment based on some specific critical success factor for financial accounting. Moreover, it also can understand that accounting standard and proper accounting policy implementation within the making of a financial report plays a key role in the professional accountant. Therefore it also can be said that if professional judges keep their eye on the utilization of proper accounting standards along with accounting policies suggested by the government, it can impacts positively on the correct decision making regarding financial accounting.

 However, in the perspective of the third respondent, professional judgment can successfully influence the corporate decisions by determining the off-balance sheet items. Moreover, the individual also said that proper accounting policy analysis also one kind of significant factor based on professional judgment. Therefore, it can be analyzed that the professional judges must need to keep their focus on balance sheet reliability and putting of reliable or valid financial data regarding their business activity. It also impacts positively on the proper financial accounting with the help of professional judgment in context successful decision making.

Summary

From the above study, it can be summarized that the entire study mainly emphasized on the critical analysis of the response of the respondents to make a valid and reliable conclusion. Moreover, this study also helps to summarize that professional judgment is too useful for making a perfect decision regarding financial statement reliability. On the other hand, it also can understand that the core emphasizing factors of professional judgment helps in making a potential financial report. Besides, it helps to summarize the effectiveness of AASB accounting standards. This study mainly summarized the importance of professional judgment in the context of measuring the accounting of lease contracts along with corporate transactions. Finally, it can be summarized that this study mainly helps in making a potential conclusion regarding the application and requirements of professional judgment within financial auditing

5. Conclusion and recommendations

Conclusion

From the above discussion, it can be concluded that the entire study mainly emphasis on the importance of professional judgment in financial accounting. However, the study helps to summarised about the core concept regarding professional judgment effectiveness along with its significant areas for financial accounting such as accounting policies. On the other hand, it also can be concluded that the professional accountant did not think professional judgment can influence the proper financial statement-making as per the interview replies. Besides, it also can be summarising that some significant factors of professional judgment play a key role in the perfect decision-making process regarding financial statement truthfulness. The entire discussion helps an individual to asses about the significance of accounting standards in the financial accounting along with the effectiveness of professional judgment. Moreover, it also can understand that if the firms implement the professional judges for deciding on the financial statement can impact positively on the brand image development. It also can be concluded that the entire discussion successfully met all the objectives of the study.

Recommendations

Based on the issues found within the financial accounting regarding transaction and lease contract some recommendations can be provided to the professional judges in the context of issue mitigation such as

• At first, the professional judges need to pay attention to the risk assessment and planning which helps to understand the business environment along with its nature. Therefore, the professional judge can understand about the risks for a particular organization which can impact on their financial statement

• Then the professional judge needs to focus on the internal control testing which mainly includes proper authorization aspects, asset safeguarding, and the duty segregation. It also helps the professional for scaling back some of the companies audit procedures

• After following the aspects mentioned above the professional judges must keep their eye on the cash, inventory cash, accounts payable, debt, revenue and expenses of the organization. It mainly helps in perfect auditing of an organization by analyzing all the financial aspects along with the overall transaction of the organization.

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